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Friday, February 8, 2013

Tower REIT (TWRREIT) is one of the more solid REITs around with a dividend yield of approximately 8%. It is part of the Hong Leong Group and owns several office buildings in downtown KL with solid MNCs as tenants. Rentals are stable and increasing.

For anyone holding shares of TWRREIT at the close of 13 Feb 2013, they will be entitled to a dividend of 6.04 sen per share. On the 14th, it will be trading ex-dividend, meaning the opening reference price will be taken from the closing price on the 13th minus the dividend amount. So if it closes on the 13th at RM1.52, the opening price on the 14th will be RM1.46.

As the price chart of TWRREIT above shows, the share price consistently recovers from ex-dividend reference price adjustments. In Feb 2011, it took about 4 months to recover while in Feb 2012, it took one month. This means that in 2012, it only took one month for a shareholder to fully realize his dividend gains of about 4%. 4% for one month's waiting time is not bad.

For those interested to play on this theme, we can either buy the shares on the 13th, get the dividends, and wait for the share price to recover; or try to buy the shares at ex-dividend adjusted price on the 14th.

If we buy on the 13th, there is the pesky issue of having to manually reinvest the dividend income received. If we choose to enter on the 14th, we risk not being able to buy at the adjusted price (the market may choose to ignore Bursa's reference price).

A move into this share on the 13th (to secure the dividend) or on the 14th (at a lower ex-dividend adjusted price) may be sensible if we have money tied up in other stocks which are not moving or losing. Moving these funds into TWRREIT on the 13th or 14th may offer a higher probability of gains within 1-4 months (notwithstanding risks associated with the 13th Malaysian General Elections).

In the unfortunate event of unfavorable market developments arising from the General Elections, TWRREIT with its defensive features will probably be a good choice anyway.

Thursday, December 27, 2012

Financial Freedom is the holy grail of Financial Planning. It is the final goal of the whole exercise; to develop a stream of passive income to sustain our lifestyles. The whole idea sounds so good... We can retire and live on dividends, interest and rentals for the rest of our lives.

The way to achieve it is actually quite easy to quantify. Let's work backwards. Let's say you need RM5,000 a month to pay for your lifestyle. This is RM60,000 a year. At a rate of return of, say, 6%, you will need RM1,000,000 in capital to generate this amount of income.

Now, how do we get the RM1,000,000 in the first place? You need to save RM1,500 a month at a rate of return of 10% for 20 years.
If you are 30 years old, the idea of becoming a guaranteed millionaire at 50 shouldn't sound too bad. After all, if you don't do this, what are the chances that you will get a million bucks in any other way?

And yet, not many people are willing to do what it takes to achieve this.
At first, I thought that it may be due to the lack of discipline or lack of willpower etc. But now I think that human psychology is not that straight forward. It is not so simple, not so black and white.

Why would someone be willing to spend RM1,500 per month to pay for a car, but not be willing to spend RM1,500 a month to pay for their future financial security?

The answer is: That person prefers the car to financial freedom. Having a good car now is more important than having financial freedom later.

It is simply a matter of preference, not willpower. You don't need willpower for something you don't want.

I think deep down, the idea of financial freedom actually scares us. We may be very keen to make quick bucks here and there, but real financial security is a totally different thing...

For example, let's say you can have RM20 million now. An amount like this can easily generate returns in excess of RM1 million per year. You won't have to work another day in your life.

But if you are not working, what would you be doing? Watching DVDs? Playing games? Golfing? Visiting KTVs and spas? Shopping? Buying LVs? Touring the world?

Would that be fun? Of course it would be fun if you did it once in a while. But would it be fun if you did it for the rest of your life?

You won't be needed anymore. Your decisions won't matter. Your only decisions would be what to eat and where to shop. No one would be asking for your opinion on things like they used to at the office. You won't be involved in projects that matter. Even if you participate in some social charity projects, not doing a job out of necessity is just not the same.

You would have lost your purpose in life if your only purpose is to eat, sleep, and be happy. Nothing you do would actually matter to anyone and people would come to you for the sole purpose of getting some money from you.

There would be nothing to do that really NEEDS doing. Everything is an option which you could choose NOT to do. Would life be meaningful then?

I think for the majority of people, it wouldn't. That's why they subconsciously refrain from taking the steps to financial freedom although their mouths may claim to want financial freedom. It actually is quite low on the list of priorities.

Freedom from financial need...does it cut us off from a purposeful life too?

For a young person who is still productive, who still has ambitions and goals to achieve...are these goals purely monetary? Or do they also want to achieve fame and leave a social legacy?

I have come to notice that for many, fame and recognition is a much bigger motivator than money. Money is just our tool to buy fame. That is why people are willing to exchange wads of cash for a flashy car. That is why they are willing to commit to credit card debt to buy things which feed their social needs at the expense of committing to a savings program.

Financial Freedom may sound like the ultimate dream. But it actually is not.

It is not a lack of discipline or stupidity which causes people not to make the sacrifices to achieve financial freedom. It is because deep down, it's not what they really want.

Therefore, financial planning shouldn't be done on the assumption that everyone wants financial freedom. Some people may sacrifice a little to create an emergency reserve, some may want to invest a bit for the thrill and exhilaration, and some may prefer short term cash management just for the pleasure of squeezing some modest returns out of their cash in hand. We all have different tastes.

Every plan must be based on an objective. You can't have a good plan if you get the purpose of the plan wrong in the first place.

Friday, August 24, 2012

A lawyer and an investor are sitting next to each other on a long flight. The lawyer leans over to the investor and asks if he would like to play a fun game. The investor just wants to take a nap, so he politely declines and rolls over to the window to catch a few winks.

The lawyer persists and explains that the game is real easy and lots of fun. He explains,"I ask you a question, and if you don't know the answer, you pay me $5. Then you ask me a question, and if I don't know the answer, I'll pay you $5."

Again, the investor politely declines and tries to get to sleep. The lawyer, now somewhat agitated, says, "Okay, if you don't know the answer, you pay me $5, and if I don't know the answer, I'll pay you $50!"

This catches the investor's attention, and he sees no end to this torment unless he plays, so he agrees to the game. The lawyer asks the first question. "What's the distance from the earth to the moon?"

The investor doesn't say a word, but reaches into his wallet, pulls out a five-dollar bill and hands it to the lawyer Now, it's the investor's turn. He asks the lawyer "What goes up a hill with three legs and comes down on four?"

The lawyer looks up at him with a puzzled look. He takes out his laptop computer and searches all of his references. He taps into the air phone with his modem and searches the net and the Library of Congress. Frustrated, he sends e-mail to his co-workers all to no avail.

After about an hour, he wakes the investor and hands him $50. The investor politely takes the $50 and turns away to try to get back to sleep.

The lawyer then hits the investor, saying,"What goes up a hill with three legs, and comes down on four?" The investor calmly pulls out his wallet, hands the lawyer five bucks, and goes back to sleep.

Wednesday, August 22, 2012

Five years ago, around the year 2007 - before the start of the Global Financial Crisis - I remember that prices were much lower than they are today. The price of real estate was roughly half of what it is now, and so were petrol and food. It used to be that RM5 was the standard budget for a decent meal, now it is closer to RM8 or RM10. The only things which have obviously become cheaper since then are computers and electronics - prices drop as the R&D cost for groundbreaking technologies are recouped and we get so much more functionality for the same prices – but prices of most other stuff has gone up.

Which begs the question: What exactly is money? What is this thing which can change in value so easily in such a short space of time? If you find an RM100 note today in your drawer which you stashed away five years ago, I am sure the ‘power’ of that note has dropped since you first kept it there.

Seen this way, money is like love. We can obsess about it and pursue it, without truly knowing what it is. Money, just like love, are not absolutes. The goal posts are always moving and we need the participation of others in order to make it work. Someone who hoards cash is like someone trying to ‘possess’ his lover. Just like someone who owns the body of his lover but not her soul, we can also end up owning the physical form of money without actually owning its usefulness.

In the end, money is just a figure; a numerical representation which can be manipulated by the powers that be. All over the world, our money is backed by central banks. Which means that they can actually gang up to decide what your money shall mean. Our monetary system has long been divorced from gold and silver. And even if it were still connected to gold and silver, it wouldn’t change anything. In the 16th century, the value of silver crashed when the Spanish found vast amounts in the mines of Central America and started to produce too much of it.

Therefore, money and gold and silver are NOT wealth. They are just temporary representations of wealth. They can be proxies for the stuff which we can eat, use and live in; but we cannot eat, live in or use money in any practical way by itself. I can tell you that a house is worth a million ringgit today. But what is a million ringgit? The term ‘one million ringgit’ is one which changes meaning all the time.

A better way to measure the value of a house is by saying that: “The monthly rental of this house is equivalent to one thousand packets of chicken rice”. The value of houses and chicken rice to society is much more consistent than the arbitrary valuation of dollars and cents which is getting more and more unpredictable.

In the end, wealth should not be measured by a figure on a computer screen showing your bank account balance. This method works most of the time, but at certain points in our economic history, they get distorted beyond recognition. Wealth should always be measured in buying power; the ability to buy the things which really makes us wealthy – such as food, clothes, and houses.

Consequently, the best investments are also in these things which have ‘real’ value. Invest in companies which make and sell food, clothes and houses; as well as the companies providing the raw materials to make these stuff such as plantations and mines.

Investing in gold and silver is risky because NASA may just find a new mother lode of gold and silver on the moon next month, and the value of gold and silver will be altered. Lending money to the bank (Fixed Deposits) is also risky because the dollar value is locked; and in times of inflation, your FD will be eaten away. Gold and cash by themselves are not useful. They are only useful when we can exchange them for food and clothing and houses and cars; and the rate at which we can exchange is very volatile.

Therefore, I would rather directly invest in what is useful to me – in the companies which make the food and clothing and houses and cars; as well as the farms and mines and plantations which provide the raw materials.

The recent inflation in Malaysia which we can see with our own eyes very much clarifies Warren Buffett’s meaning in his article which I previously posted on this blog. The oracle of Omaha really is the oracle of Omaha.

Back to our comparison with love; when we deal with money, we must get to the foundation of what we want. Do you want romantic poems and lovely serenades (representations of love), or do you want someone who will always be there for you (real love)? Just like a wedding can easily be confused with a marriage; so too is money frequently confused with wealth.

Tuesday, August 7, 2012

Do not be afraid of defeat. You are never so near to victory as when defeated in a good cause. ~Henry Ward Beecher

There are those who say there is no glory in losing. That no matter how valiant your effort, if you lose then it amounts to nothing.

That, actually, is not true. It was made very clear last night when the nation avalanched support and adoration for Dato’ Lee. It may have been a loss, but the effort certainly was not for nothing.

We could see he was playing for us, for every person watching the match in Malaysia.

We were truly represented in the Olympics; not just because there were participants there who happen to share the same nationality, but because there was someone there who sincerely wanted to win for us.

And this sincere effort, although resulting in a loss, made more of a difference to all Malaysians than any of his wins ever did.

On Facebook and Twitter, everyone told him that it was okay, that we still support him, that we are proud to be Malaysians because of him. For a while, the topic made the top three of Twitter’s ranking globally.

It was a loss that sparked a nation. Not many people have been able to unite Malaysia like this since Tunku Abdul Rahman led us to Merdeka.

Our response was not because we were sad. It was not because we were really disappointed. It was because we were touched by a true Malaysian hero.

If you win and people celebrate you, it is normal. But if you lose and people still support you; you are a true champion.

History is full of famous ‘losers’ who made a larger difference than many winners did.

In ancient China during the Three Kingdoms period, Liu Bei and his ragtag team rose to vie for supremacy over the realm. They did not succeed, but their deeds and exploits continue to inspire Chinese all over the world today. The cleverness of Zhuge Liang, the loyalty of Guan Yu, and the valor of Zhao Zilong is known by every Chinese child.

In ancient Greece, 300 Spartans blocked the path of more than 100,000 Persians at Thermopylae. They eventually lost, but their deeds inspired the subsequent united Greek defense.

In Scotland during the 13th century, William Wallace faced impossible odds as he fought against the English. He was captured and killed, but his actions are immortalized and Braveheart continues to inspire freedom fighters over the world.

Sometimes, it doesn’t matter whether we win or lose. The important things are the reason behind our struggle and our courage in attempting it.

Linking this to business, we have the Chinese saying:君子爱财取之有道. “A gentleman desires wealth, but is honorable in the taking”. Aside from the obvious meaning that we shouldn't do wrong things to gain wealth, it also implies that although we want to win in business and investments, our true worth as men are measured in the way we go about it.

If we fail honorably, the worth of our assets may reduce, but our worth as men increases.

Dato' Lee's loss on the court meant he didn't get gold. But his attitude made him the Malaysian People's Champion.

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